For various reasons, insurers have not always had an easy go at enforcing the liquor liability exclusion contained in a general liability policy. There are various complex reasons that can be provided to explain this. But there is also a simple one. The liquor liability exclusion, like all exclusions, spells out a specific situation for which coverage is not intended to apply. But, by definition, when the liquor liability exclusion is in play, situations are often-times not black and white, not to mention that the facts do not always come with just one version.
In other words, call me crazy, but somehow when you throw alcohol into the mix insurance coverage has this way of becoming more complex.
In general, a liability policy’s liquor liability exclusion serves to preclude coverage for bodily injury or property damage for which any insured may be held liable by reason of causing or contributing to the intoxication of any person; the furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.
The reason for the liquor liability exclusion is simple. Based on the nature of such exposure, it is better served, and priced, through a liquor liability policy – one specifically designed to cover the furnishing of alcohol beverages. Just as commercial general liability policies have an auto exclusion, so they cannot be used as substitutes for auto policies, CGL policies have a liquor liability exclusion so they are not liquor liability policies.
But the liquor liability exclusion can sometimes be challenging to enforce because of the “alcohol factor” mentioned above and difficulty of proving that the insured’s liability is because of the serving of alcohol, as opposed to simply the presence of alcohol -- and the assorted problems that that can cause.
Again, when things go south in a bar, the whos, whats and wheres, etc. may not be easy to answer. And when the duty to defend is broad, well, you see where I’m going.
In Essex Ins. Co. v. Way Jose Enterprises, No. 13-233 (W.D. Ok. Sept. 30, 2013) [enhanced version available to lexis.com subscribers], an Oklahoma federal court addressed the potential for coverage, under a general liability policy, for injuries that took place following a night of drinking at a bar. The policy’s liquor liability exclusion was not the standard one. And this proved to be quite significant.
Jennifer Lawmaster and Mathew MacAllister celebrated homecoming at The College Bar. [The court didn’t say what school but I looked it up because I’m the curious type – Oklahoma State. A review on Yelp described The College Bar as: “Rad tunes, cheap booze and (something I deleted as not appropriate to say here). Not huge but always a good time.”] They both became noticeably intoxicated.
It was alleged that, at some point in the evening, Lawmaster was drugged and this caused her to lose consciousness and the ability to remember the events that happened after she left the bar. She was later found abandoned, assaulted, and horrifically injured. She was either assaulted by MacAllister or abandoned by MacAllister and sustained injuries from an unidentified source. She alleged that the bar breached a number of duties owed to her, including to provide for her safety, to police and prevent activities which would lead to an unreasonable risk of harm, to come to the aid of patrons, and to train the employees in regard to serving alcohol to intoxicated individuals.
Essex alleged that its general liability policy did not provide coverage for any of these potential theories or sources of liability. Coverage litigation ensued. At issue was the applicability of the following liquor exclusion: “The coverage under this policy does not apply to ‘bodily injury’ ... or any injury loss or damage arising out of: Any act or omission by an any insured, any employee of any insured, patrons, members, associates, volunteers or any other persons respects (sic) providing or failing to provide transportation, detaining or failing to detain any person, or any act of assuming or not assuming responsibility for the well being, supervision or care of any person allegedly under or suspected to be under the influence of alcohol.”
The court had no trouble concluding that the exclusion applied to everything. “Under the express terms of the liquor exclusion highlighted above, there can be no liability under the policy—once ‘under the influence of alcohol’ is shown—for not caring for her, or supervising her, or any other act of ‘assuming or not assuming responsibility’ for her. The exclusion extends both to omissions or failures to act by [the bar] and its employees and to those of MacAllister (a ‘patron’ of the bar). The exclusion thus precludes liability based on any theory of [the bar] being liable for negligent acts of MacAllister.”
Of significance for insurers that have been struggling with ISO’s liquor liability exclusion, the court pointed out that the claim involved circumstances that are different from the cases cited by the bar: “This is not a situation where the insurer’s liability will be determined by whether alcohol sold by it contributed to the tortious acts committed by MacAllister or otherwise contributed to or caused the injuries to Lawmaster. It is also (sic) does not matter whether MacAllister’s conduct did or did not constitute a supervening cause. Rather, the . . . exclusion turns on Lawmaster’s condition—was she under the influence of alcohol or not? If she was, there is no coverage.”
If an insurer that issues a general liability policy to a bar or restaurant does not want to have exposure for any aspects of its insured’s operation that come from serving liquor, it seems easier to prove that the claims arose because someone was under the influence of alcohol -- rather than how they got that way. This is especially the case when you consider the “alcohol factor.” In other words, focusing on the impact of alcohol, rather than the cause of the problems flowing from alcohol, seems more likely to accomplish an insurer’s objective of wanting to wash its hands of all things alcohol related.
On one hand, the 2013 version of ISO’s CGL policy amends the liquor liability exclusion to state that it applies even if the claims against the insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others; or providing or failing to provide transportation with respect to any person that may be under the influence of alcohol, if the occurrence which caused the bodily injury or property damage involved the otherwise excluded liquor liability conduct. However, in general, even under ISO’s expansion of the liquor liability exclusion, it must still be established that the insured caused or contributed (furnished) to the intoxication of a person.
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy J. Maniloff is an attorney in the Philadelphia office of White and Williams, LLP. He concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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